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Company refused credit due to Covid-19

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Updated: 13th October 2020

At the height of the first wave of Covid-19, UK businesses suffered extreme disruption and huge financial losses due to the national lockdown and ongoing social distancing interventions.

To combat business closures and save jobs the government brought in various loan schemes and financial assistance, but securing finance and credit hasn’t always been easy for companies/directors and unincorporated businesses.

Companies and individuals at huge financial risk

Sole traders, individual contractors, freelancers and others not protected by the limited liability structure continue to be at risk of personal financial loss. Even company directors are exposed to personal liability under some circumstances.

So when a company or other business is refused credit in this way, it’s a concerning situation given the Chancellor’s intention to provide some financial stability. If you’re struggling to secure the finance you need at this time, there are other finance options available to you that you might not have considered.

Real Business Rescue can help you source alternative funding through innovative, tailored finance solutions and private equity investors.

What type of finance might be available to your business during Covid-19?

Overdrafts and credit cards

Bank overdrafts and business credit cards can be a good temporary option when you’re looking for additional credit on a short-term basis. This type of credit doesn’t provide long-term financial stability, but can be a good source of emergency cash in some instances.

Government backed loans

Government schemes to help businesses affected by the pandemic include the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS). Government backed loans are available from high street banks and alternative lenders, and both schemes have now been extended for new applicants until 30th November 2020.

Alternative finance

Alternative finance options include asset-based lending that uses the value of your company’s assets to generate working capital. Invoice finance and merchant cash advances are also flexible funding options that might be suitable for your business. The benefits of alternative funding are that it may be easier to access than a traditional bank loan/coronavirus loan, and crucially, can be tailored to your business.

Why are companies being refused credit during Covid-19?

When a lender makes a lending decision it relies partly on a company’s credit rating to measure its risk. If a business has a chequered financial history, possibly involving late or missed payments, this will show up on their credit report and can negatively influence borrowing capacity for some years.

An individual business owner’s credit report holds similar information that lenders use when an application for finance is made, and if there are any defaults they have an equally disruptive effect on the ability to obtain credit/funding.

So what is the answer if you’re in this situation and feel that business survival relies on your ability to access finance? In part, you need to consider funding that doesn’t place a greater burden on your business over the longer term?

Invoice finance

Factoring and invoice discounting are forms of invoice finance that use the value of your sales ledger to provide funding throughout each month. Invoice factoring also offers the added advantage of outsourcing the credit control facility if you’re struggling to collect in your business debts.

Private equity investor

Private equity can be a source of investment capital that keeps your business afloat, providing a stable foundation for growth in the future. Private equity investors can also add value to a company in other ways including specialist knowledge of the sector, or industry contacts.

For more advice on securing credit and finance for your company during Covid-19, please get in touch with our team of experts at Real Business Rescue to arrange a free same-day consultation. We have contacts with alternative financiers around the UK, and operate a network of offices nationwide.

Keith Tully

Partner

0800 644 6080

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